Using BP Neural Networks to Prioritize Risk Management

Today, my latest article was published in the open access journal Sustainability. The article — Using BP Neural Networks to Prioritize Risk Management Approaches for China’s Unconventional Shale Gas Industry — was co-authored by Cong (Cindy) Dong (a Ph.D. student at China University of Petroleum School of Business Administration, currently visiting me at the University of Alberta), Xiucheng Dong (China University of Petroleum, School of Business Administration), Joel Gehman (University of Alberta School of Business), and Lianne M. Lefsrud (University of Alberta, Department of Chemical and Materials Engineering).

China has become the top energy consumer in the world. At the same time, China is facing intense international and domestic pressure to reduce the greenhouse gas and other emissions resulting from its primarily coal-based energy system. Given these twin pressures of increasing energy demand while controlling emissions, the development of China’s shale gas industry has emerged as a strategic national priority.The shale gas resource distribution in China is illustrated in Figure 1. Seven provinces—Sichuan, Xinjiang, Chongqing, Guizhou, Hunan, Hubei and Shanxi—account for 68.9% of the nation’s total reserves.

Figure 1. Shale gas resource potential in China’s provinces (trillions of m3).

The article was motivated by a conundrum: How can shale gas development be encouraged and managed without complete knowledge of the associated risks? To answer this question, we used back propagation (BP) neural networks and expert scoring to quantify the relative risks of shale gas development across 12 provinces in China. The results show that the model performs well with high predictive accuracy. Shale gas development risks in the provinces of Sichuan, Chongqing, Shaanxi, Hubei, and Jiangsu are relatively high (0.4~0.6), while risks in the provinces of Xinjiang, Guizhou, Yunnan, Anhui, Hunan, Inner Mongolia, and Shanxi are even higher (0.6~1). We make several recommendations based on our findings. First, the Chinese government should promote shale gas development in Sichuan, Chongqing, Shaanxi, Hubei, and Jiangsu Provinces, while considering environmental, health, and safety risks by using demonstration zones to test new technologies and tailor China’s regulatory structures to each province. Second, China’s extremely complex geological conditions and resource depths prevent direct application of North American technologies and techniques. We recommend using a risk analysis prioritization method, such as BP neural networks, so that policymakers can quantify the relative risks posed by shale gas development to optimize the allocation of resources, technology, and infrastructure development to minimize resource, economic, technical, and environmental risks. Third, other shale gas industry developments emphasize the challenges of including the many parties with different, often conflicting expectations. Government and enterprises must collaboratively collect and share information, develop risk assessments, and consider risk management alternatives to support science-based decision-making with the diverse parties.

The paper is available through SSRN and ResearchGate.